US shares dragged lower by JPMorgan

US stocks fell, extending a weekly decline, as banks tumbled after JPMorgan Chase disclosed a $US2 billion trading loss. Treasuries capped the longest run of weekly gains since 1998, while commodities fell for an eighth day to extend the longest slump in more than three years.

The Dow Jones industrial average was down 34.44 points, or 0.27 per cent, at 12,820.60. The Standard & Poor's 500 Index was down 4.60 points, or 0.34 per cent, at 1,353.39, sending it down more than 1 per cent in the week. The Nasdaq Composite Index was up 0.18 points, or 0.01 per cent, at 2,933.82.

Australian shares are poised for a flat start when trading resumes on Monday. The SPI200 futures index was up 1 point to 4286. On Friday, the benchmark ASX 200 index ended down 0.2 per cent, or 10.5 points, to 4,285.1. For the week, the index was off 2.5 per cent, its worst weekly return since late November.

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The Australian dollar hovered just above parity with the greenback, buying $US1.002. It was also worth 80.1 yen, 77.5 euro cents and 62.3 pence.

The S&P GSCI Index of 24 commodities lost 0.8 per cent, extending this week’s slump to 1.7 per cent and erasing its gain for the year. The advance in 10-year Treasuries sent yields down three basis points to 1.84 per cent to as the benchmark note completed an eighth weekly increase.

Financial shares led losses as JPMorgan Chief Executive Officer Jamie Dimon blamed an “egregious” failure in trading of synthetic credit securities for the trading loss, distracting investors’ attention from an unexpected increase in the Thomson Reuters/University of Michigan index of consumer sentiment to a four-year high. Commodities fell as China’s industrial production grew the least since 2009 in April, spurring concern demand for raw materials may wane.

“The US economy is doing OK, corporate earnings continue to impress, but there’s a lot of headline risk in financials,” Stephen Wood, the New York-based chief market strategist for Russell Investments, said in a telephone interview. His firm oversees $US140.8 billion. “There will be volatility.”

The S&P 500 fell for a second straight week and extended its drop from a four-year high last month to almost 5 per cent.

JPMorgan’s chief investment office, run by Ina Drew, took flawed positions on synthetic credit securities that remain volatile and may cost the lender an additional $US1 billion this quarter or next, Dimon said yesterday in a conference call with analysts. The loss originated out of the firm’s London CIO unit, an executive at the bank said.

‘Headline risk’

US lawmakers and interest groups favoring tighter restrictions on proprietary trading said JPMorgan’s loss bolsters their case. Senator Carl Levin, the co-author of the so-called Volcker rule and chairman of the Permanent Subcommittee on Investigations, said the disclosure served as a “stark reminder” to regulators drafting the proprietary- trading ban required by the 2010 Dodd-Frank Act.

Nvidia Corp. jumped as its sales forecast topped estimates amid demand for graphics and cell-phone chips. Technology shares rose 0.9 per cent as a group and led the S&P 500 higher earlier. Intel Corp., Microsoft Corp. and AT&T Inc. were among the biggest gains in the Dow Jones Industrial Average, while JPMorgan, Bank of America Corp. and Cisco Systems Inc. had the biggest losses in the 30-stock gauge.

Swaps index

Derivatives traders seeking to profit on speculation JPMorgan is unwinding positions tied to its trading loss are driving up a vintage credit-default swaps index to the highest in more than three months.

The 10-year Markit CDX North America Investment Grade Index Series 9, created in 2007, reached as high as 139.4 basis points today before easing to 134.1 as of 12:41 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The index ended yesterday at 126.7.

Treasuries

Ten-year Treasury yields approached three-month low after German Finance Minister Wolfgang Schaeuble suggested the euro area could handle Greece dropping out. Thirty-year bonds gained as wholesale inflation declined last month before the Federal Reserve buys as much as $US2 billion of longer-term securities.

Average estimates for 10-year Treasury yields three months from now are at 1.99 per cent, 24 basis points lower than expectations in April, according to a survey from Citigroup Inc, published yesterday.

All but three of 24 commodities tracked by the S&P GSCI retreated. Cotton tumbled as much as 5.7 per cent to an almost two-year low to lead losses following a US forecast for rising inventories. Gold declined to a four-month low, losing 0.7 per cent to $US1,584 an ounce. Copper declined 1.2 per cent to $US3.648 a pound, capping a second weekly drop, on signs of slowing growth in China, the biggest consumer of the metal. Oil fell 1 per cent to $US96.13 a barrel.

“The optimism we had at the end of 2011 that created a firm footing for a lot of commodities has slowly eroded,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “The outlook remains mixed to negative.”

European, emerging markets

The Stoxx Europe 600 Index rose 0.4 per cent, erasing a loss of as much as 1.2 per cent. The regional benchmark fell 0.4 per cent this week as Greece’s struggles to form a government revived concern about the nation’s debt crisis. The euro was little changed at $US1.2931 after earlier touching the weakest level since January.

The MSCI Emerging Markets Index lost 1.2 per cent, extending declines from this year’s March 2 high to 10 per cent, the level that some investors consider to signal a correction. The Hang Seng China Enterprises Index slumped 1.4 per cent. India’s Sensex Index slipped 0.8 per cent as production at factories, utilities and mines declined in March.

Germany’s 10-year bund yield fell two basis points, while the yield on Greece’s 10-year note advanced 57 basis points, climbing for the ninth straight day. Greek political leaders go into a fifth day of talks today with Evangelos Venizelos, the socialist Pasok leader, set to press for a unity government that would avert a new election. Antonis Samaras, head of the New Democracy party, said today his sole condition for supporting a coalition government is that it guarantees Greece’s membership of the euro area.